The international trading system faces a turning point
US actions trigger trade barriers and disputes, raising doubts about the longstanding multilateral system
The US-China dispute ebbs and flows, but many doubt whether an enduring solution is possible.
Companies engaged in global trade may remember 2018 as a watershed year. Until then, the international trading system trended toward trade liberalization. But last year the United States took several unilateral actions in response to perceived harms to its interests, imposing significant tariffs and quotas on steel and aluminum in the name of national security, and imposing punitive tariffs on nearly half of all Chinese imports in retaliation for China’s commercial and trade policies. Responsive actions followed in many countries, leading to an unprecedented number of national trade barriers and disputes.
The measures and countermeasures disrupted global supply chains, and raised doubts about the multilateral system and the WTO’s ability to maintain order. Some governments remained committed to trade liberalization, continuing to pursue regional agreements somewhat successfully (the CPTPP agreement and the EU-Japan FTA are examples). But unilateralism and economic nationalism created tensions that overshadowed this progress.
Looking ahead, it is uncertain whether the US Congress will approve a NAFTA replacement. US tariffs on automotive goods, potentially dwarfing those on steel and aluminum, could hinge on the rapid conclusion of bilateral agreements with the EU and Japan. With the UK set to leave the EU in March 2019, the rules governing Brexit remain unsettled. The US-China dispute ebbs and flows, but many doubt whether an enduring solution is possible. And the WTO Appellate Body could soon stop functioning unless demands for reform (especially from the US) are met.
All of these developments challenge companies engaged in international trade. Those that invested for decades in international supply chains, relying on the trend toward trade liberalization under the WTO and numerous preferential trade agreements, are questioning their business models and acting defensively against unilateralism and domestic nationalism. Heading into 2019, answers to the numerous questions facing the global trading system remain elusive.
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